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TRADING ON DECENTRALIZED EXCHANGES: PANCAKE SWAP AS A CASE STUDY

Trading on decentralized exchanges (DEXs) are not as easy as trading on centralized exchanges (CEXs) like binance and kucoin. In some cases, traders may have to adjust slippage manually for a particular transaction to go through. In the first place, configuring a cryptocurrency wallet to suit a particular network is a bit techy and not very easy for crypto newbies. Furthermore, a wallet needs to be funded with the native token of the network after configuration. A run down of all the steps involved in trading on decentralized exchanges will be discussed here.

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STEPS INVOLVED IN TRADING ON DECENTRALIZED EXCHANGES (DEXs)

Trading on decentralized exchanges is easy for crypto natives but is quite difficult for newbies in the crypto space due to the number of processes involved. Processes ranging from wallet installation and set up, network configuration, funding of wallet with native network token and so on can be so time consuming unlike in CEXs where only a sign up and KYC process is needed. Some CEXs do not even enforce a KYC verification except transactions exceed a particular limit. Moving forward, the steps involved in trading on decentralized exchanges are discusses below;

Wallet installation

One of the advantages of trading on decentralized exchanges is that the trader retains full control over his/her assets unlike in centralized exchanges where assets are stored in the exchange’s wallet. In decentralized exchanges, a trader typically stores his assets in his private wallet and simply connects to the DEX in question without signing up or depositing his/her assets with the exchange. Since metamask is by far the most used cryptocurrency wallet, follow this link to learn how to install metamask in your wallet enabled device.

Network configuration

After installing metamask in your device, the next thing to do will be to configure your wallet to the exact network you want to trade on. Metamask being an ethereum wallet can be configured to support any EVM. In this tutorial, we’ll be configuring metamask for the BSC testnet network. To configure metamask for BSC testnet, open metamask and click the ‘ethereum mainnet‘ button dropdown displayed in the image below;

trading on decentralized exchanges

Next is to click the ‘add network‘ button as seen in the image below.

trading on decentralized exchanges

After that, fill in the details of the network in question. In this case, we’re using the the BSC testnet. Configuration details of different networks are typically found in the network’s documentation or can simply be found on search engines. Fill in the details as seen in the image below and click the ‘save‘ button.

trading on decentralized exchanges

With this, the network has been successfully configured and the next step will be to fund the wallet with the network’s native token.

Funding wallet

After configuring the wallet, the next step will be to fund the wallet with the network’s native token. This is necessary because the native token of any network is typically used as gas fee when trading on that network. To deposit to your metamask wallet, copy the wallet address and deposit from an already funded wallet or from a centralized exchange. You can get the wallet address by clicking the ‘account 1‘ area in your metamask wallet.

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First trade

Trading on decentralized exchanges is all about swapping from one token to another. In this guide, we’ll be performing our first transaction on the pancake swap testnet. Open the pancake swap testnet and connect your wallet by clicking the ‘connect‘ button at the top right. Choose the metamask option and grant permission by confirming the pop up which appears from metamask.

trading on decentralized exchanges

By now, the wallet is connected and it is time to make our first trade. Choose your trading pair and fill in the amount you want to swap. In this case, we’re swapping 0.5 BNB to BUSD. Click the ‘swap‘ button thereafter. After clicking the swap button, your wallet prompts you to confirm the transaction, do so by clicking confirm.

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HOW TO ADJUST SLIPPAGE WHEN TRADING ON DECENTRALIZED EXCHANGES

Sometimes, trading on decentralized exchanges becomes difficult due to the slippage tolerance issues. Slippage needs to be adjusted manually sometimes before transactions can go through. To adjust slippage when trading on DEXs, click the ‘wheel or settings‘ icon.

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After clicking the settings button, input your desired slippage in the input field displayed.

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CONCLUSION

Generally, trading on decentralized exchanges are difficult due to the number of processes involved. Even with the difficulties involved, the advantages of trading on DEXs cannot be ignored. In some cases, the tokens to be traded on decentralized exchanges are not available on centralized exchanges so DEXs become an only option. Trading on pancake swap is quite similar to trading on any other decentralized exchanges. Doing a proper research before trading on any decentralized exchange is more important than buying the tokens in question.

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